Not only did US President Donald Trump roll out the red carpet for Macron, he held hands with him, kissed him and told the media that his French counterpart is “perfect” and that he “like[s] him a lot”. Given Trump’s abrasive style of diplomacy and his frosty relations with other European leaders, in particular German chancellor Angela Merkel, the bonhomie between the two presidents is striking.

It is even more remarkable given the stark political and ideological differences between the two heads of state, which are part of a broader schism in the transatlantic alliance that has deepened significantly since Trump was elected president, having run on a populist and nationalist platform to “make America great again”.

In a report published in January on the state of the transatlantic relationship, Chatham House, a UK think tank, noted that “the evidence of Trump’s first year in office points to the reality that ... European policymakers will need to take into consideration an uncertain, populist and conflictual US government focused on its narrow definition of America’s national interests to the exclusion of those of its long-standing allies”.

Trump, who backed Britons’ decision to vote to leave the European Union and has aligned himself with Europe’s eurosceptic and nationalist parties, has taken a wrecking ball to many of the economic and political foundations of the transatlantic partnership. The list of major disputes between the US administration and the EU is getting longer by the day, and includes sharp disagreements over the Iran nuclear deal, climate change and the Middle East.

Despite being the world’s two largest trading partners, with two-way commerce last year amounting to €632 billion (US$757.26 billion) for goods and €437 billion for services, according to data from the European Commission, America and Europe are at daggers drawn over tariffs. While the US government decided on Tuesday to give the EU a 30-day reprieve from new import taxes on steel and aluminium, the extension prolongs an acrimonious stand-off that has driven Europe and America to the precipice of a full-blown trade war.

For Trump and the “trade hawks” who are setting policy in the White House, the chief culprit is Germany, which has allowed itself to become a prime target for protectionist action because of its huge current account surplus amounting to some 8 per cent of gross domestic product. Trump has threatened to go as far as slapping tariffs on imports of European cars, which would hurt Germany the most since it accounts for nearly 60 per cent of Europe’s car exports to the US, according to Bruegel, a Brussels-based think tank.

The trade dispute between Europe and the US has contributed to the recent slowdown in the euro zone economy, particularly in Germany where business confidence has fallen significantly. This is worrying the European Central Bank whose president, Mario Draghi, last week warned that protectionism “has a profound and rapid effect on business, on exporters’ confidence … and confidence can in turn affect growth”.

Financial markets are also increasingly concerned.

According to last month’s global fund manager survey, published by Bank of America Merrill Lynch, the threat of a trade war is now the most important “tail risk” – the probability of an unlikely event causing a sharp and prolonged sell-off – in markets. What is more, fund managers’ allocation to euro-zone equities has slumped to a 13-month low, having stood at a record high as recently as last October.

The bigger danger, however, is that the liberal, rules-based world order, which America and Europe helped create after the second world war, gives way to the forces of protectionism and nationalism – a process that is already far advanced, according to Richard Haas, president of the Council on Foreign Relations, a prominent US think tank.

Markets have been underestimating the threat posed by populism and euroscepticism in Europe ever since Britain voted to leave the EU in June 2016, when the prospect of a Trump victory in the US election still seemed fanciful.

The success of nationalist and anti-globalist parties in a parliamentary election in Italy, the euro zone’s third-largest economy, in March, shows the extent to which many of Trump’s nativist views and policies resonate with European voters. Nearly 60 per cent of Italians want to hold a national referendum on EU membership, while more than a third want to leave the EU (the second-highest percentage after Greece), according to a recent poll by the Pew Research Centre.

If these trends persist, the liberal international order will be in an even bigger crisis.